This Too Shall Pass

Stevetn.jpgMy Dad didn’t originate the title phrase, but he selectively employed it when things got tough in my life. Today, the second shoe dropped – the Commerce Department announcement of new home sales was a worse than expected -6.6%. Yesterday, the National Association of Realtors dropped the first shoe in announcing a 3.3% drop in existing home sales (vs. last month) and an 11.4% drop versus last year. Together with credit issues potentially becoming worse than expected, the stock market took an ugly dive. An overreaction? Probably. A delayed reaction? Most likely. Regardless, we’re in for a bit of a rough ride for a while until this all sorts itself out.

With the combination of events in the credit markets and the mostly negative national sales statistics, one may overlook another important statistic, though. The Commerce Department also reported that sale prices of existing homes actually rose fractionally last month. While this may be an aberration, it suggests what we have seen for a while now – a very tenacious inelasticity in home prices.

But national statistics are a very macro view. A buyer or seller in the market today can be poorly served by these numbers. To be effective, one must understand their local micro-market. For example, in our core market of Scripps Ranch many homes doubled in value from 2000 to 2005. This morning I checked some statistics for Scripps Ranch (per SANDICOR) and found that the average sale price (per foot) is down about 6%. from last year. Not bad after the 100% increase in five years.  But if you were to look at some of the individual transactions (the nano-market?) you can find homes that have actually appreciated in value over the past year, while some homes have lost 10-15% in value during that same period. Huh?? Remember, most statistics are just averages, subject to fluctuations depending upon specific characteristics such as the age of home, condition, upgrades, lot size, location, views, etc. This is where an agent can be most helpful, if the buyer or seller is willing to listen. 

What is so difficult for buyers and sellers today is the ability to be objective. Most sellers think their home is special while many buyers believe they need to purchase for thousands below current market value because they fear we haven’t hit bottom yet.  To a degree, they both are right…and wrong. But neither are being objective and that is the key.

For the buyer- When considering a price to offer for a home you must, of course, look to current comparable sales first. It can also be helpful to drive by those homes and try to determine the differences, pluses and minuses, regarding the lot location, size and view. Have your agent provide you with pictures of the inside of the home from the MLS to determine the condition and upgrades. Hopefully, your agent has already seen the comp’s and can give you a description of the differences. It may also be helpful to know how the current pricing stacks up against the historical averages of similar homes sold over the past year or two. We see buyers failing when they ignore the fact that the current list price may actually be in line with the current trend, but still want another3-5% or more off the list price. With an average sales price of $814,000 in Scripps Ranch so far this year, 3-5% isn’t chicken feed. Of course, if the home is overpriced, as many still are, you will know that too from this exercise. The challenge is to aquire the knowledge that allows you to be more objective in your decision-making. Your agent, if he/she knows what they are doing, is indispensible in this regard.    

Sellers also have to resist the use of convenient statistics to justify a price which is too high, when there is a mountain of data that suggests otherwise. Although fewer in number these days, amazingly, we still see homes coming on the market with list prices that have most of the veteran agents scratching their collective heads wondering what the agent or the owner is thinking. 

Regardless, transactions are getting done. People still want and/or need to buy and sell. You can make it hard or easy. Take your choice. Either way, it’s a much tougher market. But this too, shall pass.       

Get your Instant Home Value…